The student loan reform

Attached to the health-care reconciliation bill is a major reform of the student loan program. The easy way to explain this is that the current student loan program is both about education loans and corporate welfare. To keep rates down, the government guarantees these loans, which means that lenders get paid back even if the students default. Which means that the lenders aren't really serving any purpose.

Cutting them out will save taxpayers more than $60 billion over the next 10 years, with most of that money slated to go to Pell grants. Past attempts to reform this program have been blocked by a mixture of Republicans and Democrats with big lender companies in their states. But as Jon Chait says, "the fact that this is a straight majority vote means the usual coalition of every Republican plus a couple Democratic shills won't be enough to stop it. This would be a major advance for the cause of good government reform."

What is your take on the attempt to get an abortion deal that other sites are talking about? This "deal" is very unclear. Is it just saying that the anti-choice Dems get a symbolic vote in trade from supporting the HCR bill?

Of course, if most of the $60 billion is slated to go to Pell grants, then it's not a taxpayer savings. Alternatives would include use the $60B to lower the students cost of paying back the loan or actually save the tax payers by using it to reduce Federal borrowing.

@ visionbrkr : this is the same medicare doc fix that repiglicans voted for repeatedly when they were running congress, right?

Why shouldn't this be voted on as a separate bill? Don't repiglicans want to go on record voting to cut medicare reimbursements if it is such a bad thing? Don't they want to explain why doctors no longer want to take as many medicare patients because reimbursement are too low?

@ jackmandr : You could be correct that putting that money toward pell grants doesn't lower the deficit. If this expansion was planned anyway then this money is displacing other already allocated money then some money is being saved. If it is an expansion that wouldn't happen without this passing then it doesn't reduce the deficit.

Here's some happy news - it looks like the student loan reform ship has sailed. This week the University of Texas and most of the UT System schools announced they were doing away with lender based student loans and only using the federal direct loan program. Banks, knowing that their little cash-cow subsidy is coming to an end, are withdrawing from the student loan market.

Lender based student loans are dead. Count this one as a win for sanity and common sense.

you're still thinking I'm "siding" with Republicans on this? No I'm not. They're worse that Dems. So your team is the lesser of two evils. Is that something to be proud of?

Personally to me its the "sneakiness" of Dems that bothers me. They act like they're not, speaker pelosi said she's not yet she's no better than Boehner, McConnell etc. The only difference is that her special interests are different than the Republicans.

@VB: I don't see the problem of making this a separate vote. Why shouldn't this be taken up separately? It actually seems more honest to make this a separate vote. Do we want to adjust medicare reimbursement rates permanently? seems totally reasonable to have this as a stand alone item...

It sickens me that alleged deficit hawks have blocked this legislation for years.

And hearing John Klein (I'm a Minnesotan) railing against this as another "major government takeover" is such utter BS.

It is - finally - the ending of a totally unmerited and extremely expensive subsidy to private business. That $60 billion would go direct to the bottom line of lenders and creates NO additional student access.

Shame on Klein, who is so proud of his no earmarks stance, for defending outright transfer payments to lenders.

you want it separate but I don't get it (other than the fact it works for your "deficit neutral" argument. Its cooking the books, plain and simple and if its wrong for "repiglicans" to do it, its wrong for Dems too.

Its like if i said I wanted to do finance reform but wanted to to derivatives separately. Sorry, no.

@VB: This is something that has been fixed year to year for several years under both parties, right? Who knows maybe they will propose revenue or cutting somewhere else. In any case, like the alternative minimum tax, it isn't new and every congress just puts it off. Its not something to be proud of and proposing a permanent fix instead of pushing it down the road is actually commendable, depending on if there are any offsets. And actually the memo that started all this was apparently forged, so the premise is flawed.

No one likes subsidizing lenders, but everyone is okay with subsidizing students. Except students don't seem to be getting much of a subsidy - the institutions providing higher education are getting it.

Lots of people talk about 'arms races' in healthcare - in which if you have two competiting hospitals in an area, well they both need an MRI and a PET, even if the town only requires a single MRI and PET scanner, because otherwise the hospital with those devices eats the other hospital's lunch.

We see arms races in higher education too. If Penn State just built a $500,000 recreational facility, and has fancy new dorms which cost $200,000 per unit, well then the University of Pittsburg needs them too, and so does Ohio State, etc. With more resources, colleges can continually bid up the scarce supply of excellent professors, pay more for coaches, build sweet new business school buildings, etc. After a few years have gone by, you have uber fancy campuses and very well compensated staff, and suddenly tuition has doubled or tripled - but that's okay, because students have 'access' to loans.

While both Pell Grants and student loans create this effect, loans are particularly pernicious - they drive up the cost of tuition, increasing the total debt burden. Also, ease of access increases the amount of those with college degrees, reducing the wage/job opportunities available to your newly minted grad, making it more difficult to pay the loan off.

I suppose I wish that instead of direct subsidies, schools primarily relied on price discrimination. Say a state required its public universities to charge a maximium of 15% of the student's household's AGI in tuition. So a student that comes from a poor household of, say, $20,000/yr in AGI has to pay $3,000 for tuition, whereas a student who comes from a family making $80,000/yr in AGI could be charged up to $12,000/yr in tuition. I think the outcome might well be better than the counterfactual - subsidies increasing the tuition for both kids to $16,000, the middle class kid gets help from his parents and works, and the poor student gets a pell grant which brings the net tuition down to $10,650, and he pays the rest with student loans which then need to be paid off.

At the end of the day, I think we need to encourage education, although I'm concerned that massive subsidies are creating a lot of 'leakage' that don't add educational value.